Moderated by Kate, Financial Technology Consultant at Hyperbots
Kate: Everyone. My name is Kate, and I am a financial technology advisor here at Hyperbots. Today I’m thrilled to have Kelly O’Neill with me. Hey, Kelly, how are you doing today?
Kelly: Doing wonderful.
Kate: That’s great to hear. A little bit about Kelly—she’s the Chief Executive Officer at KM One Ventures. Today, we will be discussing Colorado sales and use tax compliance. So let’s jump right in. Coming to the first question, could you provide an overview of Colorado state sales and use tax rates? How do these rates differ across goods and services?
Kelly: Absolutely. Colorado has a base state sales tax rate of 2.9%, which is one of the lower state rates. But local jurisdictions—cities, counties, and special districts—can impose additional rates if they choose to. This can lead to significantly varied combined rates across the state. For example, general merchandise would be a 2.9% state rate plus additional rates based on local taxation, resulting in a combined rate that can exceed 11% in some areas. Food and groceries are generally exempt from sales tax, though some local jurisdictions may impose a tax on those items. Some items, such as prescription drugs and medical devices, are exempt. Colorado’s decentralized tax system requires businesses to apply the correct combined rate for each sales location based on both state and local rules.
Kate: Understood. Moving on, could you discuss some of the jurisdictions in Colorado with notably high or low sales tax rates? How does this affect businesses?
Kelly: Colorado’s local jurisdictions create a patchwork of different rates. Highest rates are found in some cities, such as Winter Park or Glenwood Springs, which have combined rates exceeding 11%. Lower rates are in unincorporated areas and towns that may have rates closer to the 2.9% state rate without any additional local tax. This variability affects businesses by requiring them to apply different rates based on where each sale occurs. Companies in high-tax areas may face customer resistance to higher prices, while businesses in lower-tax regions might have an advantage with more competitive pricing.
Kate: That makes sense. How often do Colorado sales tax rates change? How do businesses keep up with these updates?
Kelly: The Colorado state rate is pretty stable, but local rates can change frequently—often yearly or even more frequently if cities pass new tax measures. Some localities also implement seasonal rates in tourist-heavy areas, such as those with ski resorts. Businesses typically monitor rate changes through the Colorado Department of Revenue, which provides updated rate tables, or they use third-party tax compliance tools to stay current. For companies operating across multiple jurisdictions, automated solutions are crucial to ensure they are using the latest rates accurately.
Kate: What are some of the primary resources available to businesses to stay informed about sales and use tax changes in Colorado?
Kelly: Helpful resources include the Colorado Department of Revenue, the primary source for state and local tax guidelines and forms. Sales tax rate lookup tools provided by the CDOR allow businesses to look up rates by address or zip code. Additionally, third-party compliance software, such as Avalara or TaxJar, offers real-time updates and comprehensive rate information across all Colorado jurisdictions, making it easier for businesses to apply the correct rate. What challenges do companies face when managing compliance with Colorado sales and use tax rules? Could you share some examples? The main challenges include jurisdictional complexity. Colorado has home-rule cities that administer their taxes independently. For example, a company with sales in Denver, which has its own tax administration, must manage a process different from that in state-administered areas. Frequent rate changes also pose challenges, especially in tourist-heavy areas with seasonal rates. Determining taxable items adds complexity—groceries, for example, may be exempt at the state level but taxable at the local level. Businesses must remain vigilant to apply the correct rates and taxability, particularly if they operate statewide.
Kate: How can artificial intelligence help businesses manage sales and use tax compliance more efficiently, especially with Colorado’s complex local tax structure?
Kelly: AI can simplify compliance in several ways. Automated rate updates ensure that the latest rates for each jurisdiction are applied. AI tools can also determine the exact sales tax rate by customer location, ensuring accurate application across Colorado’s home-rule cities and state-administered areas. AI can handle exemptions, such as food items that are exempt at the state level but taxable locally. For example, Hyperbots AI offers a solution that automates local rate adjustments across Colorado’s jurisdictions, reducing errors and administrative costs for compliance.
Kate: How can AI support companies during audits for sales and use tax compliance in Colorado?
Kelly: AI simplifies audit preparation by managing and organizing documentation efficiently. It can retrieve invoices, sales records, and tax rate documentation by jurisdiction, streamlining the audit process. AI also detects and corrects errors, allowing companies to address issues proactively. Hyperbots AI can prepare compliance reports and organize records by location, which is especially helpful in Colorado, where home-rule cities require highly organized tax records by jurisdiction.
Kate: What do you see as the future role of AI in handling Colorado sales and use tax compliance?
Kelly: AI will likely move beyond compliance into areas like predictive analysis. For example, AI could forecast how tax rate changes across Colorado’s home-rule cities might impact revenue, helping companies plan for rate shifts. Real-time compliance monitoring could provide live dashboards with tax liability insights across different jurisdictions. Proactive compliance alerts could notify companies of pending rates or legislative changes, enabling them to adjust in advance. Hyperbots AI is advancing in this area, offering solutions that provide real-time compliance and predictive analytics, helping Colorado businesses manage complex tax rules and anticipate changes.
Kate: Thank you so much, Kelly, for sharing your insights. It was a really fruitful discussion and a big thanks to our listeners for tuning in.
Kelly: Thank you!
Moderated by Sherry, Financial Technology Consultant at Hyperbots
Sherry: Hello, and welcome to all our viewers on CFO Insights. I’m Sherry, a financial technology consultant at Hyperbots, and I’m very excited to have John Silverstein here with me, who is a seasoned finance executive with over two decades of experience in leadership roles, with expertise across both Fortune 500 companies and high-growth startups. Thank you so much for joining us today, John.
Sherry: Let’s dive into some concepts of establishing local offices for managing tax compliance across various states. My first question to you for that would be, what is the primary motivation for companies to establish local offices in multiple states for tax compliance?
John Silverstein: Yeah, the main motivation… it’s kind of archaic in some ways, as the states have changed pretty drastically since 2018, which is when the Wayfair case, commonly known, took place. It changed the way nexus needs to be established. It’s not just physical presence anymore but the main motivation is to be compliant with each state’s tax regulations and requirements. Tax laws vary significantly from state to state. So if you’re in one state, it’s hard to understand how it varies in other states or even counties, for income tax, property taxes, and sales taxes. By having local offices, you understand those nuances more closely, and you can swiftly adjust to regulatory changes that are constantly shifting. We’ll go into that more shortly, but the old way was companies selling tangible goods had to collect or remit different sales tax rates depending on the state and even county. Local offices help ensure accurate sales tax handling, which can be especially complex in states with high variability in tax rates, such as California.
Sherry: And how do local offices help companies manage their nexus obligations for sales tax?
John Silverstein: Yeah, number one, nexus, like I just alluded to, used to mean a physical presence. Having a sufficient connection to a state obligates a company to collect and remit sales tax there. Establishing a local office creates that physical presence, which immediately triggers nexus requirements, regardless of the amount of business you do in that area. It’s important to make decisions based on understanding the nexus requirements because you might already have nexus, and it doesn’t matter how much business you do. If you have a physical presence, you definitely need to be sure you’re compliant with sales tax.
One example is a technology company that has offices in Texas and California. With a local presence, they can stay updated on specific nexus laws in each state, like which digital services are taxable. That’s challenging, especially with AI and technology. Keeping up with guidance, rulings, and court cases will allow you to stay on top of tax law changes happening regularly or annually. Digital tax laws are very different across states, so having that local presence and using technology can really help keep up.
Sherry: And in your experience, what are some specific challenges you’ve seen companies face when managing tax compliance on a state-by-state basis?
John Silverstein: It’s really difficult to keep track. U.S. compliance state by state is probably the most challenging in the world due to the nuances. Every good or SKU potentially has a different tax rate, depending on where you’re selling it to and from. Keeping the cost and complexity of maintaining consistent tax reporting while accommodating each state’s unique regulations is a huge challenge. Additionally, staffing each office can be expensive and resource-intensive. It’s not always feasible for every company to do. In the case of tech companies, you typically have hubs, so it doesn’t matter where you’re operating from. You could be selling to a state, and someone could find you online, so it’s hard to keep up and understand the rules immediately. You may have to register in almost every state for tax compliance because you can instantly become a U.S. company even though you’re not physically present in the state. A large retailer operating in 25 states might struggle to keep up with property tax laws, employment tax filings, and local income tax payments. It creates a significant administrative burden. Failure to comply results in penalties, making the challenge even more critical.
Sherry: And how does having a local office help companies handle state tax audits or disputes more effectively?
John Silverstein: Yeah, with a local office, it’s easier to work with auditors and handle state disputes. It allows for quicker response times to audit requests or disputes. If they come to the office, you can work directly with the auditor, which is much easier when you have a local team that understands the laws and possibly has relationships in the area. A manufacturing company with facilities in Michigan and Illinois, for example, may face an audit in Illinois due to its complex inventory tax laws. A local office enables the company to address questions from Illinois tax authorities more quickly. A remote team may lack the depth of knowledge needed to handle local tax nuances effectively.
Sherry: Can you also provide examples of how technology like ERP systems or AI can support compliance across multiple states?
John Silverstein: Yeah, this is critical today. It’s hard not to operate in multiple states, especially for tech or SaaS companies. ERP systems that are integrated with tax software help automate and update tax calculations, and the tax software continues to be updated with localizations that understand state-specific tax rules. This integration helps centralize data and gives finance teams visibility into each state’s tax obligations. AI can automate these tax calculations based on the history and information that’s continuously updated. AI also helps with error checking and staying compliant with deadlines—whether that’s monthly, quarterly, or annual filings, which can vary by state. An example of this is a SaaS company that sells to customers across the U.S. AI-enabled tax software can automatically apply the appropriate sales tax rates for each state based on the customer’s location. This streamlines compliance without needing a manual review for each transaction.
Sherry: And what alternatives do companies have if establishing a local office in every state is not feasible?
John Silverstein: Yeah, it’s probably not feasible to have a presence in every state. So companies often partner with local accounting firms or consultants to handle specific compliance questions and issues. Another option is to use cloud-based tax software that stays updated with the latest tax rules for each state, reducing the need for physical presence. It’s important to review the software regularly because things change, with new rules and regulations, or new cases, like Wayfair in 2018, which changed a lot. For example, a mid-sized e-commerce company selling to all 50 states might use tax software like Avalara or Vertex, which tracks each state’s tax laws and provides real-time compliance support. But this still depends on your data. If your item list isn’t set up properly in your ERP system, you might still calculate incorrectly. It’s important to have a review process to ensure compliance, especially when it comes to understanding the definition of your products—whether they’re services or SaaS, which can be taxed differently depending on the state. You might still need to work with local CPAs in complex states like New York or Texas to address tax issues or handle audits without needing a physical office.
Sherry: Thank you so much for sharing these insights, John, on managing tax compliance across states. It’s clear from this conversation that while local offices bring value to compliance management, technology, and partnerships also play a critical role in this complex landscape.
John Silverstein: Absolutely, thank you for having me.
Moderated by Sherry, Financial Technology Consultant at Hyperbots
Sherry: Hello, and welcome to all our viewers on CFO Insights. I am Sherry, a financial technology consultant at Hyperbots, and I’m very excited to have John Naseath here with me, who is an accomplished executive with expertise in AI, machine learning, and computer vision, driving impactful technology solutions in education, healthcare, and business. This interview explores how discrepancies arise between line item taxes and overall tax on invoices, how businesses handle these discrepancies, and the implications for tax filing, especially when items are taxed at different rates or are exempt.So, to get started with the interview, John, can you explain why the overall tax amount on an invoice might differ from the sum of taxes calculated on each line item?
Jon Naseath: Sure, and your question is very kind of academic. It’s just the math adding up that we’ll see.But I first want to start this by saying any tax—when you say the word tax as a CFO or as a CPA—I’ve gotta say, I’m not giving tax advice. I’m just describing how the math adds up, and if anyone has any questions around how their tax filing should be done, talk to your own company’s tax specialist but the question here is really just… anytime you have many line items, and you’re applying a percentage like a tax application to a total whole number, you’re gonna end up with a long digit—more than two digits, right? And so when you add all those things up, if you sum up all those rounded off numbers, you can end up with a higher, bigger number. I remember this happened all the time when we were preparing financial statements. You add up all the sums of the totals, and it ends up being a different number than the total. It’s really just because of rounding—it’s one of the main reasons. So, if you have different line items on an invoice, and they have their own summed-up total calculated tax requirement, and you add all those up to the total one, or calculate based on the total, it could come up with a different number primarily because of rounding.
Sherry: And to dive deeper into the topic, how do businesses typically handle rounding differences between line item tax totals and the overall tax amount?
Jon Naseath: Sure. Well, most companies use an ERP system, and it’s actually calculated into that. It automatically sets up a rounding tolerance or an adjustment threshold. This feature allows small differences across the different numbers. So, for example, if you added up all the line items and it added up to $10.02, but the total might just be $10. If you add it up in pieces, it could be different. So, systems manage that, and sometimes it shows up, and you think it’s an error or someone’s spent too much time chasing it, but you have to verify—is it really rounding, or is it an error? Also, I’ll just call out fraud things where someone might intentionally add on a penny or two at the end of anything, and no one notices because they think it’s just rounding.So it matters, but really, it’s just the rounding. Every time I found what it is… well, I shouldn’t say every time, but I’m sure there were one or two times where there may have been an error somewhere in the calculation, and it showed up in the rounding. But you’ve got to chase it down.
Sherry: And are there any regulatory requirements that mandate calculating taxes on the total invoice amount rather than individual line items?
Jon Naseath: It really just depends on the jurisdiction where you’re at, especially when you’re doing global business. I’ve done business in almost every region, most countries in the world.Okay, not every country, obviously, but many regions, especially in retail environments—whether it’s online or not. There are different instances where you apply the tax, and then you also have to consider: are you applying discounts or rebates on the entire purchase or on a portion of it? It can be difficult. Usually, the ERP systems handle this, but you’ve got to be aware of what those requirements are on a line item versus how it rolls up.
Sherry: Could you also discuss how exemptions and special tax cases impact the overall tax on an invoice?
Jon Naseath: Exemptions… Yeah, I think for this, I’d want to bring up the broader context of tax. Especially in the U.S., there’s a lot of talk right now around tariffs and putting tariffs on other countries’ products.Tariffs are just another form of tax that’s applied at different times, and with exemptions, you know, I remember when Trump was in office, and he was going to put tariffs on everything. It seemed like every other week, he was changing what tariffs were on what items. I specifically helped companies set up supply chain routes that intentionally, very appropriately, and according to tax laws, routed things a different way, unbundled things, and then did the finished goods in a certain country to bring into the U.S. to avoid—tax avoidance is okay—but anyways, to make things non-taxable, to qualify for exemptions. It can be complicated to stay aware of how things are changing and what tax rules will be applied. For example, with a back-to-school scenario, it’s possible that certain things are held exempt for school-related items, perhaps. Or, you know, things are constantly changing. So you’ve got to monitor your products. Usually, a company is only selling one or two products, and they know where they fit in those categories. But when you’re doing large quantities of items, you’ve got to manage the different categories well.
Sherry: And how does the tax calculation for line items and overall totals impact tax filing from a seller’s perspective?
Jon Naseath: Sure. Well, just making sure you’re accurately categorizing what products fit under what tax, or, again, what tariff categories.Electronics could be different. I did business in India, bringing products in from China. Electronic-developed products are very painful. Or, shipping products into Brazil, they love to pile huge taxes on things. But really, it depends on what the products are. For example, India doesn’t want to bring in plastic children’s toys from China—it’s just not worth it. The U.S.—who knows what it’s going to be like? We’ll see in January with the new president-elect, and there’s talk of putting tariffs on everything. Again, it’s just a tax but state or local taxes—I think things are going to be changing a lot. So we need to monitor this, and I think this will be a big part of what CFOs and finance people, accounting, and tax people will be working on next year: changing tax strategies.
Sherry: How do ERP systems or other accounting tools help manage line items and overall tax discrepancies?
Jon Naseath: Well, the question is, how do they do it? They only do it as well as they’re programmed to do it. So if you put in garbage tax criteria and tax ratios, it’s going to apply them to future ones. I’m sure there’s going to be a lot of fire drills next year when companies realize something has changed, and they didn’t update it in their ERP system.How it does it is: it’s calculating it based on predefined rules. There are business rules, and it’s identifying a certain product in a certain category, and then how does that map into the government’s rules? It calculates it for you if it’s programmed correctly, but you’ll need your own control testing around your system testing to validate that. I’m sure there’s going to be lots of auditors testing that next year, to the degree it’s material.
Sherry: To help us understand this topic better, could you give us an example of when a seller might need to file taxes separately by category of items, and why that’s required?
Jon Naseath: Sure. One classic example is in a grocery store. They’re selling food items and non-food items. And in many places, that food item could be exempt, while the non-food item isn’t exempt. Again, rules change constantly. I was reading an article the other day about which food items are going to be allowed for EBT cards, which is government-provided funding for people who need it. And maybe those are taxed differently. So while filing taxes, the store needs to categorize and bundle what’s exempt and what’s not, based on the products they’re selling. Or, I’d even argue, how they’re bundled, because if you package it differently, it could change the tax criteria.
Sherry: And since AI is revolutionizing the domain of FP&A, I have to ask: what role can AI play in managing discrepancies between line item and overall tax calculations, especially when complex exemptions and rates are involved?
Jon Naseath: I think AI is going to be a double-edged sword for some people because you can certainly use AI to understand quickly what tax-exempt rules have changed. A lot of the AI search tools are using not just historical data—they can get you a broad view of what’s currently out there, but it might not be accurate, right? So you have to chase it back down to the real source. The other way that AI can be used more effectively, though, is… I haven’t seen a tool do this, but I’m sure it’s something you’re thinking through, and that’s great. AI could understand what’s changing, apply those business rules in an accurate way, and understand the details of the product—triangulating all the information. And I would argue that AI could also provide feedback to operations on ways to improve gross margin or your tax impact, or basically things you can change in your product to align with updated tax strategies—things maybe they hadn’t considered.
Sherry: Thank you so much, John, for this conversation, and for highlighting the complexities involved in managing taxes on invoices, particularly when line item taxes don’t match the overall tax. It’s very clear that handling these discrepancies accurately is essential not only for compliance, but also for smooth business operations.
Jon Naseath: My pleasure.
Moderated by Sherry, Financial Technology Consultant at Hyperbots
Sherry: Hello, and welcome to all our viewers on CFO Insights. I am Sherry, a financial technology consultant at Hyperbots, and I’m very excited to have Shaun Walker here with me, who is a seasoned internal audit leader with a wealth of experience in driving risk management, compliance, and governance initiatives across diverse industries. Thank you so much for joining us today, Shaun.
Sherry: Today we’ll be talking about handling sales tax verification for invoices with multi-destination shipments. To get us started with the interview, how do Hyperbots handle invoices with line items shipped to different destinations?
Shaun Walker: It’s an AI tool that treats each line independently. It identifies and extracts its unique destination address from the invoice with the shipping details, and this allows it to apply specific tax rates based on where each item is shipped. For example, if office furniture is shipped to New York and IT hardware shipped to California, Hyperbots will process each one separately and ensure that the correct tax rate is applied based on the destination.
Sherry: What role does state and local tax information play in Hyperbots’ tax verification process for multi-destination shipments?
Shaun Walker: State and local taxes vary widely. Hyperbots pulls data from data dictionaries for each destination and references both state and local tax rules. For instance, if New York has an 8.875% combined state and city tax rate for certain goods, and California has a 7.25% state rate, Hyperbots applies these distinct rates accurately for items shipped to those locations, ensuring compliance with each jurisdiction’s tax laws.
Sherry: To dive deeper into the topic, can you explain how Hyperbots manages the categorization of each line item for tax purposes when items are shipped to multiple states?
Shaun Walker: It categorizes each line item based on its product type and applies relevant tax rules to each destination. For instance, a software license delivered digitally to Texas might be exempt, whereas computer hardware shipped to California would be taxable. Hyperbots reference these tax distinctions and apply the correct tax treatment.
Sherry: How does Hyperbots address tax thresholds in different states for multi-destination shipments?
Shaun Walker: Some states impose tax collection only after certain purchase thresholds are met. Hyperbots track cumulative purchases to each state and apply tax once the threshold is reached. For example, if California requires tax only after $500 in cumulative purchases, Hyperbots will monitor the total spend per California and begin applying tax once the threshold is met.
Sherry: How does Hyperbots verify and correct any tax discrepancies for invoices with multiple shipping destinations?
Shaun Walker: Hyperbots verifies each line item’s tax application independently and flags discrepancies if the tax code doesn’t match the destination’s requirements. For instance, if a vendor applied a flat tax rate across all items shipped to different states, Hyperbots would detect this and recommend the correct rate for each location. This real-time validation minimizes errors.
Sherry: Could you summarize the main benefits of using Hyperbots for tax compliance on multi-destination shipments?
Shaun Walker: Hyperbots offers end-to-end automation. It ensures compliance with state and local tax laws for each destination without any manual intervention. It accurately categorizes and applies tax rates for each item, reducing the risk of error, saving time, and preventing compliance issues. For example, if an invoice has items shipped to three different states with unique tax rules, Hyperbots handles these seamlessly, delivering accuracy across all jurisdictions.
Sherry: Thank you so much for that insightful conversation, Sean. It’s clear that Hyperbots is quite the tool for robust handling of sales tax verification for invoices with multi-destination shipments.
Shaun Walker: Absolutely.
Moderated by Emily, Digital Transformation Consultant at Hyperbots
Sherry: Hello, and welcome to all our viewers on CFO Insights. I’m Sherry, a financial technology consultant at Hyperbots, and I’m very excited to have John Silverstein here with me, who is a seasoned finance executive with over two decades of experience in leadership roles, with expertise across both Fortune 500 companies and high-growth startups. Thank you so much for joining us today, John.
Sherry: Let’s dive into some concepts of establishing local offices for managing tax compliance across various states. My first question to you for that would be, what is the primary motivation for companies to establish local offices in multiple states for tax compliance?
John Silverstein: Yeah, the main motivation… it’s kind of archaic in some ways, as the states have changed pretty drastically since 2018, which is when the Wayfair case, commonly known, took place. It changed the way nexus needs to be established. It’s not just physical presence anymore but the main motivation is to be compliant with each state’s tax regulations and requirements. Tax laws vary significantly from state to state. So if you’re in one state, it’s hard to understand how it varies in other states or even counties, for income tax, property taxes, and sales taxes. By having local offices, you understand those nuances more closely, and you can swiftly adjust to regulatory changes that are constantly shifting. We’ll go into that more shortly, but the old way was companies selling tangible goods had to collect or remit different sales tax rates depending on the state and even county. Local offices help ensure accurate sales tax handling, which can be especially complex in states with high variability in tax rates, such as California.
Sherry: And how do local offices help companies manage their nexus obligations for sales tax?
John Silverstein: Yeah, number one, nexus, like I just alluded to, used to mean a physical presence. Having a sufficient connection to a state obligates a company to collect and remit sales tax there. Establishing a local office creates that physical presence, which immediately triggers nexus requirements, regardless of the amount of business you do in that area. It’s important to make decisions based on understanding the nexus requirements because you might already have nexus, and it doesn’t matter how much business you do. If you have a physical presence, you definitely need to be sure you’re compliant with sales tax.
One example is a technology company that has offices in Texas and California. With a local presence, they can stay updated on specific nexus laws in each state, like which digital services are taxable. That’s challenging, especially with AI and technology. Keeping up with guidance, rulings, and court cases will allow you to stay on top of tax law changes happening regularly or annually. Digital tax laws are very different across states, so having that local presence and using technology can really help keep up.
Sherry: And in your experience, what are some specific challenges you’ve seen companies face when managing tax compliance on a state-by-state basis?
John Silverstein: It’s really difficult to keep track. U.S. compliance state by state is probably the most challenging in the world due to the nuances. Every good or SKU potentially has a different tax rate, depending on where you’re selling it to and from. Keeping the cost and complexity of maintaining consistent tax reporting while accommodating each state’s unique regulations is a huge challenge. Additionally, staffing each office can be expensive and resource-intensive. It’s not always feasible for every company to do. In the case of tech companies, you typically have hubs, so it doesn’t matter where you’re operating from. You could be selling to a state, and someone could find you online, so it’s hard to keep up and understand the rules immediately. You may have to register in almost every state for tax compliance because you can instantly become a U.S. company even though you’re not physically present in the state. A large retailer operating in 25 states might struggle to keep up with property tax laws, employment tax filings, and local income tax payments. It creates a significant administrative burden. Failure to comply results in penalties, making the challenge even more critical.
Sherry: And how does having a local office help companies handle state tax audits or disputes more effectively?
John Silverstein: Yeah, with a local office, it’s easier to work with auditors and handle state disputes. It allows for quicker response times to audit requests or disputes. If they come to the office, you can work directly with the auditor, which is much easier when you have a local team that understands the laws and possibly has relationships in the area. A manufacturing company with facilities in Michigan and Illinois, for example, may face an audit in Illinois due to its complex inventory tax laws. A local office enables the company to address questions from Illinois tax authorities more quickly. A remote team may lack the depth of knowledge needed to handle local tax nuances effectively.
Sherry: Can you also provide examples of how technology like ERP systems or AI can support compliance across multiple states?
John Silverstein: Yeah, this is critical today. It’s hard not to operate in multiple states, especially for tech or SaaS companies. ERP systems that are integrated with tax software help automate and update tax calculations, and the tax software continues to be updated with localizations that understand state-specific tax rules. This integration helps centralize data and gives finance teams visibility into each state’s tax obligations. AI can automate these tax calculations based on the history and information that’s continuously updated. AI also helps with error checking and staying compliant with deadlines—whether that’s monthly, quarterly, or annual filings, which can vary by state. An example of this is a SaaS company that sells to customers across the U.S. AI-enabled tax software can automatically apply the appropriate sales tax rates for each state based on the customer’s location. This streamlines compliance without needing a manual review for each transaction.
Sherry: And what alternatives do companies have if establishing a local office in every state is not feasible?
John Silverstein: Yeah, it’s probably not feasible to have a presence in every state. So companies often partner with local accounting firms or consultants to handle specific compliance questions and issues. Another option is to use cloud-based tax software that stays updated with the latest tax rules for each state, reducing the need for physical presence. It’s important to review the software regularly because things change, with new rules and regulations, or new cases, like Wayfair in 2018, which changed a lot. For example, a mid-sized e-commerce company selling to all 50 states might use tax software like Avalara or Vertex, which tracks each state’s tax laws and provides real-time compliance support. But this still depends on your data. If your item list isn’t set up properly in your ERP system, you might still calculate incorrectly. It’s important to have a review process to ensure compliance, especially when it comes to understanding the definition of your products—whether they’re services or SaaS, which can be taxed differently depending on the state. You might still need to work with local CPAs in complex states like New York or Texas to address tax issues or handle audits without needing a physical office.
Sherry: Thank you so much for sharing these insights, John, on managing tax compliance across states. It’s clear from this conversation that while local offices bring value to compliance management, technology, and partnerships also play a critical role in this complex landscape.John Silverstein: Absolutely, thank you for having me.
Moderated by Emily, Digital Transformation Consultant at Hyperbots
Emily: Hey, everyone, this is Emily, and I’m a digital transformation consultant with Hyperbots. Really pleased to have Dave Sackett on the call with me, who is the VP of finance at Persimmon Technologies. Thank you so much for joining us, Dave, today.
Dave Sackett: Yeah. Thanks. Emily.
Emily: So, Dave, the topic that we’d be discussing today is challenges with accurately categorizing line items for tax purposes. And I’d like to, you know, kick things off by asking what are the main challenges with accurately categorizing line items for tax purposes.
Dave Sackett: I’d say the primary challenge is that line items often lack sufficient description, making it difficult to determine the correct tax category. Sometimes only a part, number, or generic term is provided without a specific line. Items are determined to be taxable or not. So, for example, an invoice might just say hardware without further details, leaving ambiguity around. Whether it’s taxable. Hyperbots can address this with AI technology that identifies tax-relevant data based on limited descriptions or part numbers.
Emily: Got it. Now that you mentioned AI technology, Dave, how does Hyperbots AI manage to categorize items with limited descriptions like a part number, or you know, let’s say a generic term?
Dave Sackett: Yeah, no. AI technology is constantly advancing Hyperbots. AI uses machine learning and natural language processing to analyze context clues in the invoice. So, for example, if an invoice lists, only a part number Hyperbots can cross-reference it to an external database to identify its category. If the part number matches a known item. This standard, such as a standard hardware, component Hyperbots, categorizes it by leveraging its extensive database of past categorization, and this means the AI can leverage both internal information and external information to make that determination.
Emily: Got it. Can you also expand a little bit on how Hyperbots use context from the entire invoice or purchase order to improve categorization and accuracy?
Dave Sackett: Sure. Yeah, Hyperbots examine surrounding items on the invoice to establish the context of where that information is coming from. So, for example, if a line item says license. But then other items include the words software or support, the system infers that it relates to a digital project or service, guiding it to the right tax category. This context-driven approach helps categorize even vague terms by using information from related terms to form the complete picture. This is a newer AI technology that can help identify this and now be used in a way to help with categorization.
Emily: Understood. And what data sources do Hyperbots leverage to enrich limited lines? Item, descriptions.
Dave Sackett: Yep. Hyperbots enrich data by tapping into prior purchase history vendor records, public part databases, and other information available on similar items. So, for example, if AI encounters a generic part number from a vendor, it checks historical purchases or industry databases to identify its category, ensuring high accuracy in categorization. This approach minimizes the risk of errors due to incomplete descriptions.
Emily: Got it talking a little about compliance, Dave. So how do Hyperbots ensure compliance with state-specific tax requirements when categorizing items?
Dave Sackett: Yeah, Hyperbots integrates a comprehensive state-specific tax category database updating it continuously to reflect the tax changes in state laws. So, for example, if an AI system knows that software licenses might be taxed differently in California versus New York and applies the correct categorization based on the state requirements. This ensures compliance and eliminates the risk of applying incorrect tax rates across different jurisdictions. And if you were to be audited, there’d be that audit trail that AI determined the right tax based on the right methodology.
Emily: Understood. And what do you know, what data does Hyperbots rely on in order to achieve 100% accurate tax categorization?
Dave Sackett: To achieve high accuracy. Hyperbots rely on several key data points, detailed item descriptions, part numbers with historical records, vendor details, transaction history, and state-specific tax categories. So, for example, if it has a full description like a digital software license, it categorizes it quickly and accurately. When these details are combined, the AI ensures precise tax calculations for each line. Item.
Emily: Got it, Dave, can you talk a little more about it? You know, how does Hyperbots’ proprietary technology continuously improve its categorization? Accuracy.
Dave Sackett: Yeah, Hyperbots. AI incorporates feedback from past categorization corrections to improve its future performance. If AI categorizes the line it’s later adjusted by the user. Hyperbot learns from this adjustment and applies new knowledge going forward. This is reinforcement learning that ensures that the AI constantly evolves adapting it to changes in product offerings, tax rules, or categorization standards. So the more you use Hyperbots, AI, the more it learns, the better it is to do its job with the correct training.
Emily: Understood. And just one last question, in order to summarize everything right? Can you summarize the primary benefits of using Hyperbots? Proprietary technology for line item tax categorization.
Dave Sackett: Sure Hyperbots provides a fully automated, accurate categorization solution that minimizes manual intervention and ensures compliance with state-specific rules. For example, by using context, clues, and part numbers. Hyperbots can categorize items accurately, even with minimal descriptions, saving time and reducing errors, it continuously learns the capability further, improving accuracy, and making it a scalable solution for high transaction volumes across multiple locations. So that automation of the tax categorization is going to save time and by improving accuracy that also saves time.
Emily: Got it. Thank you so much, Dave, for you know, expanding more on Hyperbots and talking through the challenges with accurately categorizing line items for tax purposes. It was a truly insightful discussion. So thank you so much for being here.
Dave Sackett: Yeah, thanks, Emily. Great to be here
Moderated by Emily, Digital Transformation Consultant at Hyperbots
Emily: Hi, everyone. This is Emily and I’m a digital transformation consultant with Hyperbots. Today we are speaking with Claudia Mejia about the complexities of sales and use tax compliance, focusing on the role of shipping to and shipping from addresses. So thank you so much for joining us, Claudia.
Claudia Mejia: Hi, Emily, thank you for having me.
Emily: In this discussion, Claudia, we’ll also talk about how AI can streamline tax compliance by automating address, detection, and rate applications. So the 1st question that I’d ask you is, could you start by explaining how the shipping address impacts sales and use tax calculations?
Claudia Mejia: Yeah, sure. So basically shipping to other departments and what is the calculation for the sales tax? Usually basically is determined where the goods are delivered, not necessarily where the seller is at. So in these cases, a system that there’s made not only the States, the county, and the city taxes for that transaction.
Emily: Got it. And how does the shipping from address impact sales tax in states that follow an origin-based approach?
Claudia Mejia: So there are the destination-based states. And in the United States, we also have origin-based states. There are about 12 states that are origin-based. And basically what that means is that the sales tax calculation is based on the origin of where the seller is at which creates simplification for the State. but it might not necessarily simplify the fact that when certain goods are shipped outside, the State also will follow the destination. Access rules. So there is a little bit of complexity in that as well.
Emily: Understood. So, Claudia, would you be able to provide examples of states that use destination-based versus origin-based sales, tax policies?
Claudia Mejia: So, for example, in New York, Florida, they use a destination base. So the calculations are done, based on where the chips are delivered to. And like I said, there are about 12 states that are origin-based, and some of them are Illinois, Arizona, Missouri, and Ohio. And then basically, they will calculate the rates, the tax rate based on the region within the state within the State. But, if they’re cheap outside it, they will follow the destination.
Emily: Understood. So how do the regulation and tax policies affect businesses operating across multiple states?
Claudia Mejia: Well, it creates a lot of complexity, right? And so when you have, and not only a provider that is in multiple states but also a let’s say that sales across the country. So there are a lot of setups that need to be done to make sure you follow compliance for those that need to follow origin-based personal destination, base. so systems have to be flexible to adapt to those rules. And I will say it’s complex. But if you have a good set of rules you’ll be able to manage. But there are other ways that you can do it more efficiently, more efficiently.
Emily: Got it. So what role does economic nexus play in determining sales, and tax obligation? And how exactly does it affect multi-state businesses?
Claudia Mejia: So economic nexus basically means that there are some obligations to collect tax based on the state, and also it is ruled by the threshold of the revenue. So, for example, if you sell to California and there is revenue over 500,000, then you would have to collect sales tax in the State of California, even though you are, let’s say, in an origin-based state. So those are other complications and other rules that you need to make sure that you adapt as you grow cells in another state.
Emily: Understood. And Claudia, how can AI help automate the detection of shipping to and shipping from addresses on the invoice?
Claudia Mejia: No. So I will use Oc NLP and natural language processing to basically read the invoices and repurchase orders. So when the AI reads, for example, the shipping to address or shipping from address, they will calculate the taxes automatically. And so, instead of always trying to make sure that all these rules are in the system, AI will automatically calculate.
Emily: Got it. And how does AI help ensure that the correct tax rate is applied, based on these different addresses?
Claudia Mejia: So you can have a database with these rules. And then AI can read the rules, read invoices, read the rules, and basically apply them right? But also the Llms will have information of those rules that can also just read it and apply it automatically. And kind of that’s the beauty of AI. You don’t have to have manual entries of these taxes all the time, or verification of these databases. Yeah, I can do it by itself pretty well.
Emily: Got it. So just out of curiosity. Can AI help businesses monitor and comply with economic nexus thresholds across the different States?
Claudia Mejia: Yes, so the beauty of AI is that it is proactive in the sense that if we understand that, or if we know that we have to comply with the economic nexus. That means that there are certain thresholds of revenue. We can set up those thresholds, and AI will know when those thresholds are coming up. and it can basically acknowledge proactively to make sure that the company registers and follows their rules and compliance for that. So, instead of a person always trying to figure out, where is my revenue? Which states it would be very complex. complex to do it, while AI does it proactively for you.
Emily: Understood also, Claudia, how can AI assist in automating the use of tax calculations for out-of-state purchases?
Claudia Mejia: Well, the same way that it does it. for the seller. It will work the other way around, right? And so it would. Let’s say that we have a purchase, and somebody the seller did not calculate the sales tax. Then it will flag the issue. It will tell you. Hey? You did not apply the sales tax. So it kind of is a self-assessment to make sure that you don’t have penalties or other audit compliance to follow and so that’s also the beauty of it.
Emily: Got it. And just one last question, Claudia, to summarize everything. What additional benefits can AI provide for sales and use tax compliance, especially during audits?
Claudia Mejia: Well, you want to make sure that your records are very sound right? And so AI will help flag inconsistencies. A flag error or missing sales tax. So if you have those setups you’ll be able to catch a lot of errors that maybe the human won’t be able to do in a day to day operations. and then your audits will work and will go faster. More efficient people will basically use their time on more important activities than just trying to follow transactions. Will read patterns and the reporting of the insights. It will be proactively telling you some important information about that.
Emily: Got it so thank you so much, Claudia, for sharing these insights on sales and use tax compliance. You know it’s pretty clear that leveraging AI can greatly simplify the complexities of multi-state tax obligation. and also sort of help. Businesses maintain compliance more effectively. So thank you so much for talking to us about such an imperative topic.
Claudia Mejia: No, thank you, Emily, very much appreciate it.
Moderated by Sherry, Financial Technology Consultant at Hyperbots
Sherry: Hello, and welcome to all our viewers on CFO Insights. I am Sherry, a financial technology consultant at Hyperbots, and I’m very excited to have Shaun Walker here with me, who is a seasoned internal audit leader with a wealth of experience in driving risk management, compliance, and governance initiatives across diverse industries. Thank you so much for joining us today, Shaun. Today we’ll be talking about a very niche topic, which is Alabama sales and use tax compliance. To get us started, Shaun, could you just provide us with an overview of Alabama State sales and use tax rates? And how do these rates differ across goods and services?
Shaun Walker: Sure. So I’ll say that the general rate is 4% for most goods, like clothing, electronics, and general merchandise. Certain rules have differences for specific industries. For example, automotive vehicles are locked in at a 2% rate. Farm machinery and manufacturing equipment are at a 1.5% rate, and grocery items are reduced to a 3% rate versus 4%.
Sherry: To dive deeper into the topic, could you also discuss some of the jurisdictions in Alabama with notably high or low tax rates? And how does this affect businesses?
Shaun Walker: Different local jurisdictions set different sales tax rates. For example, Arab, Alabama, has one of the highest tax rates at 12.5%, whereas East Florence, Alabama, has a relatively low tax rate of about 5.5%. For businesses, this variation means applying the correct rate depending on the sale location. If we don’t, it can lead to noncompliance.
Sherry: And how often do Alabama’s sales and use tax rates change? And how do businesses keep up with these updates?
Shaun Walker: The rates can change several times a year, particularly at the local level. For example, in February 2024, Clay County increased its rate from 6% to 10%. Statewide changes, such as the recent reduction in groceries, also occur but less frequently. The way that businesses keep up is by relying on third-party tax compliance solutions or government resources. Updating systems to reflect new rates requires constant vigilance, which can be challenging for small and mid-sized businesses without any type of automated solution.
Sherry: What are some of the primary resources available to businesses to stay informed about sales and use tax changes in Alabama?
Shaun Walker: There are three main resources. First is the Alabama Department of Revenue—that’s the primary source. Then there are sales tax rate lookup tools provided by Avalara, which help businesses quickly access rates based on addresses. Third, there are websites like salestaxhandbook.com that provide a detailed breakdown and change alerts.
Sherry: What challenges do companies face when managing compliance with Alabama’s sales and use tax rules? Could you share some examples?
Shaun Walker: A few challenges stand out. One would be the complexity of tax rates—variations in rates based on locality can be confusing, especially for businesses selling across multiple jurisdictions. The frequency of rate changes makes it difficult to stay up to date because they can change multiple times per year. Determining taxability is another challenge. Not all items or services are taxed, so companies need to correctly categorize products. A common issue is misclassifying professional services, which are generally exempt.
Sherry: How can artificial intelligence help businesses manage sales and use tax compliance more efficiently?
Shaun Walker: One way is by automating tax rate updates. AI-driven systems can automatically update tax rates across jurisdictions, ensuring real-time compliance. AI can also analyze transactions to determine taxability, helping reduce errors in tax applications. Lastly, continuous monitoring of legislative changes and automatic adjustments to tax settings can be facilitated through AI.
Sherry: Additionally, how can AI support companies during audits for sales and use tax compliance?
Shaun Walker: There are two main ways. First is document retrieval. AI systems can quickly retrieve invoices, tax records, and supporting documentation, saving time and reducing stress. The second is error detection. AI can review historical transactions to identify discrepancies, such as applying an incorrect tax rate.
Sherry: What do you see as the future role of AI in handling Alabama sales and use tax compliance?
Shaun Walker: AI’s role will expand from compliance management to strategic planning. AI can forecast the impact of tax rate changes on company revenue by analyzing historical data and identifying sales trends in high-tax areas. It can also enhance reporting by providing real-time compliance dashboards, giving finance teams immediate insights into tax liabilities. Lastly, AI can send proactive compliance alerts, notifying companies of pending legislative changes and their potential impact on tax compliance.
Sherry: Thank you so much, Shaun, for sharing your insights on the topic. Your expertise provides valuable guidance for organizations aiming to optimize their financial operations.
Shaun Walker: Absolutely. Thanks for having me.
Moderated by Emily, Digital Transformation Consultant at Hyperbots
Emily: Hi, everyone. This is Emily, and I’m a digital transformation consultant with hyperbots. Really pleased to have Dave Sackett on the call with me. Who is the VP of finance at Persimmon Technologies. Thank you so much for joining us, Dave.
Dave Sackett: Yeah. Thanks, Emily.
Emily: So, Dave, the topic that we’d be discussing today is AI-driven sales tax verification strategy. And I’d like to kick things off by asking, how exactly does hyperbots AI-driven sales tax verification strategy ensure compliance with varying tax laws?
Dave Sackett: Sure. Hyperbots’ AI strategy automatically verifies sales tax rates by extracting the relevant data from invoices, purchase orders, and such as origin and destination addresses. These details are cross-referenced against local, state, and federal dictionaries to make sure compliance is maintained. For example, if a company in New York buys goods from a vendor in California, the AI pulls California as the origin, New York as the destination, allowing it to accurately assess sales tax based on these locations.
Emily: Understood. So can you also explain how hyperbots automatically categorize line items on invoices for accurate tax treatment?
Dave Sackett: It uses NLP and machine learning. Hyperbots categorizes each line item on an invoice into relevant tax categories. For example, an invoice with software licenses, computer hardware, and consulting services would be categorized as digital goods, physical goods, and services respectively. Each category may have a different tax requirement or exemption ensuring applied tax is accurate based on the item types.
Emily: Got it. And how does Hyperbots tracking of purchases by origin and destination exactly add value to sales tax verification?
Dave Sackett: Tracking purchases by origin and destination allows hyperbots to monitor total purchases over time for given locations, which is crucial for jurisdictions with specific thresholds. For example, if California requires tax to be collected only after total purchases exceed a certain threshold, hyperbots can identify when this threshold is met and apply the correct tax treatment automatically, preventing overpayment, noncompliance, and saving time.
Emily: Understood. Dave, can you also explain to the viewers how hyperbots reference sales tax dictionaries to verify the accuracy of applied taxes?
Dave Sackett: Yes, hyperbots leverage comprehensive sales tax dictionaries that can be accessed by AI, which include state, local, and product-specific sales tax rates. For example, if a vendor applies a 7.5% tax on a transaction where 8% is the correct rate, the system will flag this discrepancy by comparing it against the updated dictionary for that state. This ensures that the tax on the invoice is precisely aligned with local regulations and helps the accountant understand where that gap is in compliance and make the correct move.
Emily: Got it. Do you mind walking us through a specific example of how hyperbots would handle a tax exemption on a service item?
Dave Sackett: Sure. Let’s suppose an invoice includes software as a service or SaaS provided by a California vendor to a company in New York. Hyperbots identifies the SaaS as a category potentially exempt from New York sales tax by referencing New York’s tax guidelines. The system flags any incorrectly applied tax, recommending its removal to maintain compliance and avoid unnecessary costs, and again, to save time.
Emily: Got it. How are discrepancies in applied sales tax rates handled by hyperbots?
Dave Sackett: Hyperbots flags discrepancies automatically. If the AI detects that the rate applied by a vendor differs from what’s listed in the tax dictionary, it sets it aside and alerts the finance team, suggesting the correct rate. For example, if a vendor charges 9% tax when 8.875% is applicable, hyperbots notes that discrepancy, enabling quick correction before payment is made, which is far more difficult to reverse. This also ensures a clear audit trail, saving time.
Emily: Understood. Just a couple more questions, Dave. How does hyperbots ensure that its tax dictionary remains accurate and up to date?
Dave Sackett: Hyperbots regularly updates its tax dictionaries with the latest rates and regulations at all jurisdiction levels. This is especially important because tax laws are dynamic and change all the time. By integrating periodic updates, hyperbots guarantee that they apply the most accurate tax information, whether it’s for a physical good, a digital good, or a service.
Emily: Got it. And how exactly does Hyperbot’s AI-powered system operate autonomously to identify and correct tax application errors?
Dave Sackett: Hyperbots runs systems without manual intervention. It’s automatic, analyzing and validating tax applications as invoices and POs are processed. For example, if an invoice includes an incorrect tax on consulting services due to location-based exemptions, hyperbots automatically flag that mistake, providing recommendations. This ensures real-time accuracy without a heavy workload for the finance team.
Emily: All right. Do you mind giving an example of how hyperbots handle multi-state or multi-jurisdiction tax complexities?
Dave Sackett: Sure. Hyperbots handle multi-jurisdiction complexities by analyzing both the origin and destination information and referencing those state-specific tax laws. For example, if a company in New York purchases from a vendor in Texas, hyperbots considers both Texas and New York’s state laws. If New York mandates a different tax treatment than Texas, hyperbots applies the appropriate rate based on the destination-specific requirements, ensuring compliance.
Emily: Got it. And just one last question, Dave. What would you say are the primary benefits of using Hyperbot’s AI-driven approach to sales tax verification?
Dave Sackett: Hyperbots offer several benefits in this area. It enables compliance by applying accurate jurisdiction-specific sales tax rates, reduces manual intervention and potential for human errors, and saves time by automating these complex tasks. For example, the AI-driven approach identifies and corrects tax errors autonomously, freeing up resources in your finance department for more strategic activities. By tracking cumulative purchases, hyperbots can adjust tax treatment based on purchase thresholds, which is particularly beneficial for organizations with high transaction volumes across multiple locations.
Emily: Got it. Thank you so much, Dave, for talking to us about AI-driven sales tax verification strategy, especially in regards to hyperbots and how the various nuances are solved. It’s really insightful. Thank you so much.
Dave Sackett: Yeah. Thanks, Emily.
Moderated by Emily, Digital transformation Consultant at Hyperbots
Emily: Hi, everyone. This is Emily, and I’m a digital transformation consultant at Hyprbots. I’m really pleased to have John on the call with me, who is the VP of FP&A at Extreme Reach. Today, we’ll be discussing sales and use tax compliance, which is an area that often flies under the radar but has significant impacts on a company’s bottom line and operations. So, John, let’s quickly dive into the topic. I’d like to kick things off by asking, what are some of the compliance risks companies face if incorrect sales or use tax is charged by vendors?
John Silverstein: The impact is significant, and it affects your customers too. If you’re not passing it on, or you’re not registered in the right states, and your vendors aren’t compliant, then, if they go through an audit, they might start charging you sales and use tax. This actually happened with one of my clients recently, where we had to go in and make sure there were adjustments. There are a lot of gray areas, which makes it hard to stay compliant and understand the rules, especially since they’re constantly changing, particularly as technology evolves. With SaaS environments, for instance, states vary on whether it’s considered a service or not. Everyone has been trying to figure out: is it a service or isn’t it? Having AI support compliance by state makes it very complex.
Emily : Understood. Also, John, could you explain why incorrect tax charges lead to cash flow disruptions?
John Silverstein: It goes back to compliance. If you’re not compliant, you can incur penalties, which can end up costing more than the sales tax itself. Sales tax rates can be quite high in some states—I’m in New York, where sales tax is closer to 10%. Non-compliance can impact your customers, who may not want to continue services, and it also affects your credibility. If you have to pay both sales tax and penalties due to an audit, it can be very disruptive to your cash flow.
Emily : Understood. How do you think tax compliance affects a company’s reputation with stakeholders?
John Silverstein: It affects everyone because there’s an expectation that you should know and manage tax compliance accurately. Larger organizations may assess sales and use tax on themselves, but everyone is essentially trusting each other in this environment. If you’re a vendor collecting sales tax, and you’re not doing it correctly, it can raise concerns. To maintain credibility and look professional, it’s crucial to stay on top of tax compliance.
Emily : Understood. Talking about best practices, John, what are some best practices for ensuring accurate sales and use tax compliance within an organization?
John Silverstein: There are several key practices. One is regular tax reconciliation and invoice reviews. For example, each month, we might review a sample of invoices to ensure tax calculations align with the latest rules. You could also use a program to do this since rules change, or new cases arise that impact tax obligations. If you’re a reseller, you should be tax-exempt, so it’s important to have the correct exemption certificates. If you’re not checking every bill in a large organization, you might not realize you’re being charged taxes when you’re actually exempt. This creates room for error, and many companies overpay their sales and use taxes.
Emily : Got it. Could you provide examples of automated tools or processes that help with tax compliance?
John Silverstein: There are various tools, including tax compliance modules in ERP systems. There are also add-ons like TaxJar and Avalara, which are popular with smaller businesses. Some large accounting firms also offer services to keep companies tax-compliant. It’s critical to get both software and professional tax advice due to the complexity of these rules. Tools like Hyperbots can automate compliance by applying specific state rates using AI to categorize invoice items and identify tax obligations accurately. This reduces manual intervention and human error, which is key because, without a tool like Hyperbots or specialized tax software, it’s hard to stay compliant. AI is particularly useful because it’s constantly updated, whereas legacy tools rely on your descriptions, which may not always be accurate.
Emily : Got it. So, John, can AI help companies keep up with changing tax rates and rules across jurisdictions?
John Silverstein: Absolutely. AI can not only monitor rules and regulations but also adapt to changes that aren’t always reflected in the regulations right away, especially as sales models shift to subscriptions. For instance, in New York, if tax rates are adjusted, AI can detect these changes and update the system to apply the correct rate for each transaction. AI can also monitor legal rulings that determine whether something is taxable, which helps companies stay compliant and avoid penalties.
Emily : Got it. To round off the discussion, John, what are some challenges companies face when implementing AI for tax compliance?
John Silverstein: One challenge is that AI doesn’t have full judgment capabilities yet, so it requires human oversight. For instance, in Michigan, SaaS services recently became taxable, but this isn’t always explicitly stated in the regulations. Often, AI assists, but it may struggle with vague or evolving legal definitions. These ambiguities can make it difficult to interpret compliance requirements, especially as court rulings continue to define these regulations.
Emily : Understood. Thank you so much, John, for sharing these insights. It’s clear that accurate tax compliance is vital for financial stability, and AI offers exciting possibilities to make this process more efficient and error-proof. I really appreciate your time and expertise. Thank you.
John Silverstein: No problem. Thank you for having me.
